It is no big secret that Southeast Asia is home to some of the most rapidly growing economies, making it a desirable place to expand business operations and find the talent needed to achieve key organizational goals. Strategically located in the heart of the region is Singapore, which leads the pack in terms of international trade and investment and offers a pro-business environment and strong free market economy. In addition to low personal and corporate tax rates, a high standard of living and its position as a gateway to the rest of Asia, this small nation offers big benefits to companies of any size.

Despite its economic freedom, though, Singapore is well known for its many rules and laws influencing everyday life, including employment and payroll. The country’s payroll laws comprise regulations regarding basic employment benefits, leave claims, statutory funds and employee tax computations, and there can be expensive penalties when companies don’t comply. For any organization that plans to hire employees in Singapore, it is integral to have a firm understanding of these complex and often-changing labor laws.

The following are some of the major areas employers should know about before hiring workers in Singapore to ensure they are in full compliance with the nation’s numerous policies:

The Employment Act

Singapore’s Employment act details the rights and duties of an employee under a contract of service with an employer, with the exception of domestic workers, seamen, government employees and those in managerial and executive positions. According to this act, the contract of service must include the designation title and job scope, hours of work, probation clause, remuneration package, employee benefits, code of conduct and termination. Companies that fail to account for any aspect of the Employment Act can face severe fines and possible jail time.

Central Provident Fund

Originally set up as a retirement savings plan, Singapore’s Central Provident Fund (CPF) has emerged as a comprehensive social security savings system that also addresses healthcare, home ownership, family protection and asset enhancement. Employers are required by law to pay monthly contributions to the CPF for their workers, with the contributions determined by an employee’s wages for a calendar month.

Foreign Worker Levy

In an effort to control the number of foreign workers and encourage companies to hire more local employees, Singapore has established a Foreign Worker Levy pricing mechanism. Under this regulation, employers are responsible for paying a levy when hiring foreign workers who hold work permits or S Passes, although they are not required to pay CPF contributions for these individuals. There is also a category of foreign workers who are under Employment Pass (EP), which is a type of work visa issued to foreign professional employees, managers and owners or directors of Singapore companies. For these employees, employers do not need to pay the foreign worker levy or CPF contributions. In addition, to further spur the hiring of local workers, there is a quota for how many foreign workers a company can employ.

Skills Development Levy

Under the Skills Development Levy (SDL) Act, employers must contribute on behalf of their employees to the Skills Development Fund, which provides grants to employers who send their employees for training. Employers are required to contribute to the SDF for all workers, whether full time, part time, temporary or foreign, up to the first $4,500 SGD of gross monthly remuneration at a levy rate of 0.25 percent, with a minimum contribution of $2 SGD.

These are just some of the labor laws and contributions employers will have to deal with when expanding their business to Singapore. However, employers shouldn’t be discouraged from tapping into Singapore’s educated and qualified workforce. CloudPay’s worldwide team of global payroll experts can help organizations understand and comply with the country’s most complex laws and regulations. To find out other important policies employers need to know about when hiring workers in Singapore, stay tuned for our next blog post!